Question

Financial data for Joel de Paris, Inc., for last year follow:

Joel de Paris, Inc. Balance Sheet
	Beginning Balance			Ending Balance
Assets
Cash	$	140,000		$	135,000
Accounts receivable		331,000			476,000
Inventory		574,000			480,000
Plant and equipment, net		815,000			809,000
Investment in Buisson, S.A.		393,000			434,000
Land (undeveloped)		255,000			248,000
Total assets	$	2,508,000		$	2,582,000
Liabilities and Stockholders' Equity
Accounts payable	$	375,000		$	340,000
Long-term debt		1,011,000			1,011,000
Stockholders' equity		1,122,000			1,231,000
Total liabilities and stockholders' equity	$	2,508,000		$	2,582,000

Joel de Paris, Inc. Income Statement
Sales					$	4,136,000
Operating expenses						3,474,240
Net operating income						661,760
Interest and taxes:
Interest expense	$	130,000
Tax expense		195,000				325,000
Net income					$	336,760

The company paid dividends of $227,760 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%.

Required:

1. Compute the company's average operating assets for last year.

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.)

3. What was the company’s residual income last year?

Answer 1

Operating assets do not include Investment in Buisson, S.A. And Land (undeveloped)
1
Beginning operating assets = 2508000-393000-255000= $1860000
Ending operating assets = 2582000-434000-248000= $1900000
Average operating assets = (1860000+1900000)/2 = $1880000
2
Margin = Net operating income/ Sales = 661760/4136000= 16%
Turnover = Sales/Average operating assets = 4136000/1880000= 2.2
ROI = Margin*Turnover = 16%*2.2= 35.2%
3
Residual income = 661760-(1880000*15%)= $379760